Airlines run out of services to cut, eye flights

by Tom Johansmeyer on

Cuts aren’t limited to airline employees and passenger amenities. In the next few months, capacity – the number of asses that can be accommodated – will be sliced. Having fewer flights will lower costs and boost the all-important revenue per available seat-mile (RASM) metric. For passengers, the drop in supply is likely to push fares higher and convenience lower (if you’re looking for non-stop flights, you’ll have to look harder).

It’s earnings season – and what happens down on Wall Street will ripple through every airport in the country. Six of the nine top airlines in the United States posted profits for the year – fun! – but they did it on falling sales. What’s that mean for the average traveler? It means airlines have had to cut their way to profits, because they aren’t growing. If passengers aren’t spending as much, all the airlines can do is take away services that cost money. And, with RASM down 19 percent year-over-year for seven U.S. airlines, they have little choice.

If you’ve been on a flight recently, you’ve seen there isn’t much left to cut, which is why airlines are going to be cutting the flights themselves. For the fourth quarter of 2009, total available seat-miles (one person flying one mile on one flight) is expected to fall to 12.4 billion – which is close to post-9/11 levels. Two years earlier (Q4 2007), it was 14.2 billion.

I hope you believe that “getting there is half the fun.” If you do, the decline in non-stop flights won’t bother you as much. Prepare for layovers – lots of ’em. This will help airlines consolidate flights, fill vacancies and boost RASM. But, it also means that you’ll spend a bit more cash at Auntie Anne’s (get some cheese with those pretzels!).

Cutting costs could actually lead to higher prices, which the airlines desperately need – but it means a smaller base of seat-miles on which to make money. Competition will fall on some routes, and overall supply drops – both of which give airlines the power to increase fares. Of course, these really are minor forces compared to broader economic conditions. The ability of customers to pay is ultimately what drives the cost of a ticket, and absent an economic recovery, fares will stay low, as will airline earnings.

Foreigners spend $9.5bn on travel to and in the U.S., down 22%

by Tom Johansmeyer on

It’s not exactly a surprise: foreign spending on U.S.-related travel is down sharply year-over-year. In May this year, foreigners dropped $9.5 billion on travel to the United States and tourism within the country. This is down 22 percent from May 2008. according to the Department of Commerce. A global recession triggered by last year’s financial crisis (duh) has made travel relatively more expensive, despite the fact that it’s generally cheaper. After all, a trans-Atlantic flight for $10 is worthless if you only have $1.

People traveling to the United States spent $2.1 billion last May, a decline of more than 22 percent. Other travel and tourism goods and services accounted for $7.5 billion – off 23 percent year-over-year. This is the seventh month in a row in which travel spending to and within the United States fell, and the trend has accelerated since November 2008. Single-digit declines ended in February 2009, and a 15 percent drop in April preceded May’s total 22 percent decline.

So, if you aren’t hearing as many fun accents at your local restaurant, this is the reason why. Travel discounts, sometimes, aren’t enough to offset financial calamity … a fact that industry has come to know all too well.

Americans prefer independence (when traveling)

by Tom Johansmeyer on

The United States is the largest leisure travel market in the world – by far. The closest point of reference is the entire European Union. We’re three times larger than our closest competitor, the United Kingdom. Yet, despite our size, we just don’t spend as much money on packaged travel. In fact, the folks in the UK spend 50 percent more on it than we do.

Over here, the travel business accounts for $271 billion a year, according to travel industry research firm PhoCusWright, and only 7 percent of that ($18 billion) is spent on travel packages. Meanwhile, the UK has an $84 billion-a-year travel industry – not even a third of ours – and they spend $30 billion a year on packages (35 percent of the local market).

What’s the deal?

There are plenty of reasons bandied about. Europeans tend to take longer vacations, with 10 to 14 days not unusual (especially for the residents of northern European countries), and they tend to take more time off than the workaholics in the United States. They go more and longer, which translates to increased spending.

But, this doesn’t explain the affinity for packages. What makes Americans different?

Well, independence is a major factor. Americans usually prefer to set their own agendas, deciding what they want to see and do, taking on the task of research (and coming to places like Gadling – thanks, by the way, we all appreciate it) and putting together the pieces on their own.

Maybe we’re getting lazier or trying to seem like sophisticated Europeans, but the packaged travel market is growing on this side of the Atlantic, even rapidly. Of course, you need to compare it to starting point to understand how this can happen. In 1999, the packaged travel market was effectively nonexistent. Some large, enterprising online travel agencies, however, created a market from nothing, and turned it into an $8 billion space by the end of last year. This “new” offer has grown at a compound annual growth rate (CAGR) of 50 percent during this time, while tour operators have seen aggregate revenues decline at a compound annual rate of 5 percent.

So, we’re still not heavy package buyers in the United States, but taking the easy way out is becoming more and more attractive.

World tourism to be slower than expected this year

by Tom Johansmeyer on

The UN World Tourism Organization just changed its mind about global travel and tourism this year. I guess forecasting is easy when you can always issue a new one … as long as the previous efforts are forgotten. Well, I wish I could tell you that the UN believes we’ve turned the corner – and that travel is going to spike this year. But, it isn’t. The group has added a bit more doom and gloom to its prediction, given continued economic instability and the swine flu situation.

Worldwide, the organization predicted a 4 percent to 6 percent international tourism decline for the year – this is down from the January prediction of zero to 2 percent. The changed direction coincides with the International Monetary Fund‘s sense of the global economic situation. In January, it called for economic growth of 2 percent this year. Now, it’s predicting a fall of 1.3 percent.

For the first four months of 2009, the World Tourism Organization noted an 8 percent drop in global tourism, with only 247 international tourism arrivals. Europe‘s results were more severe than those of the world as a whole, off 10 percent. Asia was down 6 percent, and Africa and South America were up 3 percent and 0.2 percent, respectively.

Even in tough times, everybody wants to go to France, which remained the top tourism destination with 79 million arrivals. The United States moved into second place for the first time since the September 11, 2001 attacks, reclaiming its position from Spain.

Americans still spending everywhere else

by Tom Johansmeyer on

Last year, 63.6 million Americans traveled abroad, a 1 percent drop from 2007, according to data from the U.S. Department of Commerce. This was the first fall since 2002. Nonetheless, spending grew fro the fifth year in a row to $112.3 billion – up 7 percent from 2007. Americans spent $79.7 billion in foreign countries, with the balance ($32.6 billion) coming from air transportation.

Mexico bucked the trend in 2008: travel from the United States grew by 4 percent. Travel to Canada, the other nearby destination, dropped 7 percent, and overseas excursions were off 1 percent.

In addition to being the top destination for Americans abroad, Mexico led in spending. Americans dropped $11.1 billion with its neighbor to the south, followed by the United Kingdom ($10.5 billion), Canada ($7.3 billion), Germany ($6.3 billion) and Japan ($5.2 billion). U.S. travelers set spending records last year in Germany, Japan, Italy, Hong Kong, Taiwan, Korea, Australia, the Netherlands and Argentina.